What happens to your business if you're gone -- for good?

Small business succession planning typically focuses on answering the age-old question, "Who's next?" Possibly you plan for your successor to be a family member, a long-term employee, or just whoever has the most cash when you're ready to sell.

But what happens if you pass away unexpectedly? If that happens, "Who's next?" may be a lot less important. Many business owners don't have a succession plan that covers the unexpected, and when they die the business often dies with them.

You've probably thought a lot about who will take over for you someday. But how can you make sure what you intend to happen will actually happen? If you don't have the right short- and long-term plans in place, it won't.

Long-Term Plans

We'll start with long-term succession planning; hopefully your short-term succession plan won't need to be implemented, but eventually everyone needs a long-term plan.

Here's a scenario: You have three kids and your business makes up half the value of your estate. Your daughter is involved in your company and you intend for her to eventually take over. Your two boys want no part of the business. And you intend to leave an equal share of your estate to each of your three children.

That can be a problem. In most states, if you pass away without an effective estate plan in place, by default each child will receive an equal share in your business, splitting company ownership three ways.

Or, depending on your marital status, your spouse may receive 50% of the company with your children splitting the remaining 50%.

Either way, it's a mess.

Now say you aren't married and you leave the business to your daughter. Then your boys will not receive an equal share in your overall estate. That also creates a mess where family dynamics are concerned.

Life insurance is one potential solution to the problem. Say your business is worth $1 million and you also own $1 million in assets outside the business. Purchase a life insurance policy worth $1 million and make your boys equal beneficiaries. Then leave the business to your daughter and half of your non-business assets to each son. The life insurance policy makes up the difference, everyone gets an equal share of your overall estate, and your daughter retains full ownership of the business.

Or say your business partner passes away; life insurance helps in that case, too. Include a buy-sell clause in your operating agreement. You and your partner take out life insurance policies naming each other as the beneficiary. If one of you passes away the insurance proceeds can be used to purchase their share of the business.

Short-Term Plans

Long-term ownership issues are one thing; who will run the business on a day-to-day basis if you are in an accident and are incapacitated? What if major decisions need to be made like selling or purchasing assets or arranging financing? As the owner you may be the only person with the authority to make certain transactions. In that case, a guardian may need to be appointed to take over your affairs -- and guardianship can be a time-consuming and all-too-public legal process.

One option to try to get around guardianship is to set up a power of attorney that allows your agent to act on your behalf under the circumstances and scope of authority you specify. Or you can set up a trust, place the business in the trust, and enable your successor trustee to step in and manage the assets of the trust if you are unable. You can also stipulate what happens if you unexpectedly pass away, including language that states whether the business goes to your spouse, to your child or children... whatever you decide.

Keep in mind these are just a few of the options available. Talk to an experienced estate planning attorney for specific advice regarding your situation and your intentions. Make sure you not only decide, "Who's next?" but also, "How can I make absolutely sure they will be next?"